For-Profit vs Nonprofit Business Schools

As a prospective online MBA student, there are many schools and colleges to choose from. Students can choose between public, private, for-profit, nonprofit, religious, liberal arts, large, and small schools. Does each category give an important insight into what type of education they will offer? Will it affect the MBA degree? Will it affect your future career prospects? Possibly.

Let's look at the differences between for-profit and nonprofit schools.

the organization must file annual information that is made available to the public in order to uphold accountability

The general misconception is that a nonprofit organization cannot have any profits, which is not true. A nonprofit organization can hold profits at the end of the year, but no profit can be distributed to any shareholders or stakeholders. All profits must stay within the organization to be used for the public benefit.

For-profit schools are not new. They started over a hundred years ago as small private schools offering education in specific trades, such as bookkeeping. Today, the main argument between the two is whether a for-profit school can give as good of an education in associate, bachelor's, and master's studies as a nonprofit school. This is important as a prospective online MBA student, because there are for-profit schools with available online MBA programs to consider.

People question for-profit institution's motivating factors, cost, quality, alumni employability, and student loan default rates. Let's take a look at each of these factors and decide for ourselves if a profit status gives us a true look on the quality of online MBA offered by an organization.

Motivating Factor

A nonprofit educational institution's sole purpose is the education of their students. A for-profit institution, as hinted at in its name, has an additional focus, profits. This is where people question the motives of for-profit schools. Do they really care about the education they are offering their students, or are they just wanting to make a buck?

If we look at businesses in general in our country, the way to make a sustainable business, and thus sustainable profits, would be to sell a better product or service than someone else and better meet the needs of the public. Anyone can start a business and try and sell something, but to grow they must be able to deliver on what they offer. This is the upside to a capitalistic society and it holds true for for-profit colleges. If they want to sustain profits, then they have to deliver on their services. Since for-profit schools are not getting subsidies from the government, they must produce a product that people will buy and will encourage others to buy so that their doors can remain open. Do they focus on receiving a profit? Yes. Sustainability demands it. Are there bad apples that will seek the short-term profit? Yes, it is easy to find in the news, stories of schools that are being sued because their degrees were fraudulent. But they should not be around for very long. A good indicator of a high caliber for-profit school is that they have a history of growth, and that they have shown their students are employable to the public. When searching for an online MBA, check when the school was founded and the MBA degree, and look for stories from alumni and take note on their careers to see if the trajectory of the alumni match the trajectory that you are seeking.

Quality

The subject of the quality of higher education schools leads to research into school regulation and accreditation. Is there a level of quality that one can assume based on a school's accreditation or their basic existence in higher education in the US?

Higher education schools must uphold certain national and state regulations. The Higher Education Compliance explains national regulations found within the Higher Education Act. This act specifies that institutions cannot misrepresent themselves, not act discriminatorily, and then further identifies some administrative regulations. Also, last year, the US Department of Education released a gainful employment regulation at the urging of eight civil rights organizations. This regulation requires all career education programs, meaning virtually all programs at for-profit colleges and all programs of less than two years at public and non-profit colleges, that receive federal student aid, must prepare students for gainful employment in a recognized occupation. This regulation is meant to protect students and taxpayers from over-priced, poor-quality education programs that lead to high student loan default rates. These are regulations on the national level. They are few and somewhat vague, but that is because of the tenth amendment states that those laws not stated in the constitution, for example, education, should come from the state level.

Washington State law for example, is two-fold. The law requires a degree-granting institution within Washington state to receive authorization from the state as well as accreditation from an agency recognized by the US Department of Education. The US Department of Education recognizes 14 accrediting bodies. These are the checks and balances that the State of Washington has put in place to uphold the quality of education institutions. Regulations and laws do vary from state to state, but it shows that state laws can set up a benchmark for schools granting degrees.

Accreditation is a very important indication on the quality of a school. Take note that the highest caliber of school accreditation is regional accreditation and that there are six regional higher accrediting agencies recognized by the U.S. Department of Education: Middle States commission on Higher Education, New England Commission of Higher Education, Higher Learning Commission, Northwest Commission on Colleges and Universities, Southern Association of Colleges and Schools, and Western Association of Schools and Colleges. These regulations and accreditations apply to colleges and universities of both profit statuses.

For business schools in particular, search for schools with added business accreditation. Accreditations you can look for include, AACSB, ACBSP, and IACBE. This accreditation is an added assurance that the business school and MBA program has been assessed by an outside organization and found to hold high standards.

Cost

People debate that public schools are much more cost effective and that for-profit schools are "high-tuition schools." The College Board publishes the average undergraduate charges by schools in each sector. In-District tuition for Public Two-Year schools come in at $3,435, Public Four-Year schools' In-state tuition is $9,410, Public Four-Year schools' Out-of-state tuition is $23,893, Private Nonprofit Four-Year schools' tuition is $32, 405, and For-Profit schools' tuition is $15,610. For-profit school tuition actually sits right at the middle of all those.

It is understandable that for-profit schools have a higher tuition than many in-state public schools. That is because those public schools receive funding from the federal government. For-profit schools have to think of creative ways to keep costs down like setting offices in strip malls, office buildings, or offering online courses. This is actually a contributing factor of why so many more traditional colleges are implementing online degrees, because costs can be kept at a minimum. Most traditional colleges bring in much more money per student because they need to fund things like campus amenities, large numbers of employees, and higher salaries. If students see for-profit school tuition inching up closer towards the higher costs of more traditional schools, specifically out-of-state public school tuitions and private school tuitions, then questions should be asked to where those profits are going.

Alumni Employability

Employability is an important factor to consider, because if a school affects a student's employability negatively then students will not be able to get better jobs with better pay, to pay off their student loans. For employability, we can visit our friends at Payscale. Payscale offers a graduate school ranking by salary potential. Not every school in the country is on this ranking, but is does include schools from each sector. There are much fewer for-profit schools than private and public schools in this ranking, but there are for-profit schools to note.

Colorado Technical University – a four-year, private, for-profit university that was established in 1965 as the Colorado Electronic Training Center. Their online campus alone educates over 21,000 students every year. Colorado Tech offers a 48-credit hour, ACBSP-accredited online MBA program. Payscale ranks their master's programs at #457 with an early career salary of $58,100 and a mid career salary of $91,800.

Trident University International – a four-year, private, for-profit university that was established in 1998, who teaches over 6,000 students annually. Trident offers a 36-48-credit hour, regionally accredited online MBA program. Payscale ranks their MBA at #519 with an early career salary of $64,300 and a mid career salary of $87,100.

Walden University – a four-year, private, for-profit university that was founded in 1970, and teaches over 52,000 students every year. Walden offers a 36-credit hour, ACBSP-accredited online MBA program. Payscale ranks their MBA at #591 with an early career salary of $53,100 and a mid career salary of $89,500.

Student Loan Default Rates

Student loan default rates are a problem in our country. Our federal government loans students money to go to school and for one reason or another, some students will fail to pay and the government is out millions of dollars. The most recent default information available is for the fiscal year of 2012-2013. The US Department of Education Federal Student Aid Office announced that based on that data, the national cohort default rate is 11.8 percent. Public schools students have a default rate of 11.7% with 301,453 defaulted borrowers, private schools students have a default rate of 6.8% with 73,747 defaulted borrowers, and for-profit or proprietary schools have a default rate of 15.8% with 235,384 defaulted borrowers. These default rates are a problem, but the percentages tell about the percentage of defaulted borrowers. The total for-profit defaulted amount of money is not as large as the percentages show it to be. By combining the College Board's tuitions figures and the Federal Student Aid's number of defaulted borrowers, we can see a clearer picture of money being lost. With each type of school, an equation was calculated:

average tuition x defaulted borrowers = total money defaulted

For the public schools, let's assume that an equal number of borrowers defaulted from each of their categories since the Federal Student Aid Office didn't delineate on two-year, four-year, in-state, or out-of-state.

Three and a half million dollars of defaulted money for students from for-profit schools is a large number. But, public schools and for-profit schools come out almost even with a little over a third of the total defaulted debt and the private schools come out a little less than a third. Yes, for-profit default rates should be researched and appropriate actions must take place to help lower them, but in reality default rates for other schools are troubling as well.

Take-aways

Colleges and MBA programs should not be judged on their profit status alone. Some for-profit schools have shown to be fraudulent and nothing more than diploma mills, but that is not true for every school with a for-profit status. Forbes put it this way, "If they were as devious as some make them out to be, there would be no market for them." But history has shown the opposite. The New York Times stated that "for-profits make up the fastest-growing segment of higher education, accounting for 20 percent of the two-year associate's degrees granted in the United States, up from 8 percent two decades ago. Their share of bachelor's degrees has risen to 7 percent, from virtually nothing." The New York Times further explains that for-profit schools are more nimble and flexible than traditional schools and can change and tailor courses based on the demand. Meaning, as a particular field grows in need of business training, for-profit schools could offer more concentrations and specializations quicker than more traditional schools and MBA programs. Some for-profit schools have stood the test of time and flourished, and some have not. The ones that show continued growth should not be judged solely on their profit status.

No student wants to spend their time, energy, and money working towards a degree that doesn't benefit them in any way. Thus when students are looking towards starting an online MBA, they need to be assured that their degree is not a waste of time. Prospective online MBA students deserve a wide range of options, thus students should thoroughly research schools on each side of the profit status line in order to find the best school with the highest return on investment.